– How can inflation be hitting this hard in the US, when the dollar is getting stronger around the world when compared to other currencies like the Euro?

Question

– How can inflation be hitting this hard in the US, when the dollar is getting stronger around the world when compared to other currencies like the Euro?

In: 16

Answer 1

The world overwhelmingly denominates debt in dollars. Tons of debt, even in foreign countries, is to be paid back in US dollars. When a global recession hits the value of the assets used as collateral for loans decreases (stocks, bonds, CDOs). In response to the decreased collateral value the debt holder needs to pay back some of the debt to avoid a margin call and liquidation of the underlying collateral. They need to get their hands on US dollars in order to pay it back. the world needs dollars to pay off those debt obligations

Another big reason is because the federal reserve raises their target interest rates on 10-year government bonds, which causes more investors to purchase US treasuries as a way to escape the volatility and uncertainty of riskier investments. A US bond is the “safest” investment in the financial world and a rise in interest payments on those bonds causes investors to purchase dollars to purchase bonds.